The Qinetiq Financial Fiasco
What follows is a report providing evidence and example of the massive mis-management of public finances by the last Labour government so that no-one will be tempted to give their vote to the Labour party at the next Scottish election or any future similar event.
4 September 2014: George Robertson demeans his nation
Robertson in full flow. The scathing put-down of his nation is revealing since it mirrors that of Labour politicians presently in Westminster. https://www.youtube.com/watch?v=xm-nTYXmofc
The audacity of the man attacking those who proffered a look forward to the possible future size and shape of Scottish defence forces. But he was responsible for giving away the UK defence force’s entire research programme for a pittance, against the wishes of just about anyone with any common sense.
The UK National Audit Office (NAO, investigated the circumstances that had brought about the ill-judged hastily prepared plan bringing about the almost total privatization of a key part of the Defence Department.
At a NAO interview, Lord Gilbert, former Minister of Procurement for the UK Defence Department, advised he had warned, (before the sale) that the Treasury Department’s (Gordon Brown’s) proposed sell-off, to a US private equity company of the UK Defence Department’s research arm was, “a disaster in the making”.
He further stated he had personally warned the UK Defence Secretary (Lord Robertson) that the sale would be a, “bloody scandal” but the stake in the agency was subsequently sold. The article; http://www.theguardian.com/uk/2007/nov/21/military.immigrationpolicy
Robertson knows no shame
Today, the Center on the United States and Europe (CUSE) and the Project on International Order and Strategy (IOS) at Brookings hosted Lord George Robertson for an address on the historic Scottish referendum and the international consequences of the decision. Lord Robertson, taking the “no” position on the vote asked “who would cheer loudest on the 19th of September. Robertson’s absurd statement:
“The loudest cheers for the breakup of Britain would be from our adversaries and from our enemies. For the second military power in the West to shatter this year would be cataclysmic in geopolitical terms. If the United Kingdom was to face a split at this of all times and find itself embroiled for several years in a torrid, complex, difficult and debilitating divorce, it would rob the West of a serious partner just when solidity and cool nerves are going to be vital. Nobody should underestimate the effect all of that would have on existing global balances and the forces of darkness would simply love it.”
20 June 2000: Defence laboratories sell-off criticised
Plans to sell off most of the government’s secret defence research laboratories were attacked by an all-party committee of MPs. In a report on the sell-off, the defence select committee said the risks far out-weighed the “hypothetical benefits”. It also said the privatisation plans could endanger the UK’s ability to get effective military equipment for the armed forces. The Labour chair of the committee, Bruce George MP, said the plans were “fundamentally flawed”. The future of defence research was far too important to be pushed into a public private partnership with a wing and a prayer.
Intially the government planned to sell off the entire agency but stopped short of that following widespread concerns about national security, particularly from the United States. But Mr George thinks the new plans are unlikely to silence critics.
Mr George said he was certain that the decision had been forced by the chancellor of the exchequer, Gordon Brown as it is thought the sale could raise up to £1bn. “The drivers are the Treasury,” he said. He rejected the idea that the Ministry of Defence was too inflexible for effective research to be carried out under its auspices. “There’s ample scope within the existing framework with a little more flexibility to continue to do the job,” he said.
Under the plans, a core of around 3,000 staff would stay in the Ministry of Defence to give the government access to in-house impartial advice. Sensitive sites including Porton Down in Wiltshire, where chemical and biological weapons research is carried out, would also remain under state control. More than 9,000 defence scientists would be employed by a private company that would be sold off and floated on the stock market. Unions say a further 3,000 jobs will be lost. http://news.bbc.co.uk/1/hi/uk_politics/798097.stm
30 April 2002: The birth of Qinetiq
Qinetiq is a silly name for a deeply serious company, one whose founding principle is nothing less weighty than the defence of the realm. Until the middle of last year, Qinetiq was the main part of the Defence Evaluation and Research Agency (DERA), the British Government’s secret military laboratories. Now, Qinetiq – currently owned by the Ministry of Defence – is on course for privatisation, wooing venture capitalists with a view to a stock market listing. But can secretive government scientists hope to thrive in the private sector?
DERA was a child of the Cold War, a means of channelling scientific expertise in the struggle with the Soviet Union. Beginning in the 1950s with some of the pioneering work into chemical and biological warfare, the agency had reached a peak of sophistication by the end of the 1980s. But then the sudden end of the Cold War eliminated DERA’s raison d’etre at a stroke.
Margaret Thatcher, then prime minister, cut off funding for DERA and similar agencies. “She wanted to find out what they were good for by making them go out and find customers for themselves,” says Sir John Chisholm, Qinetiq ‘s chief executive. At first, self-reliance did not come easy. “Everything was upside down from the commercial point of view,” says Sir John. “Under the old regime, if you won any business from the outside world, that subtracted from the revenue coming in from the Treasury – so winning business was a bad thing.”
A decade on, and the agency has found its commercial feet. “Profit is not in itself an objective, but it is a measure that you are really good at what you’re doing”, Sir John Chisholm, Qinetiq
Last year, the bulk of DERA – excepting the super-secret Defence Science and Technology Laboratory – the newly formed private shareholder company, renamed itself Qinetiq, and began the slow process of piecemeal privatisation.
Qinetiq still earns some 80% of its £800m annual sales from winning Ministry of Defence tenders. But it is the remaining 20% that is the firm’s main growth area, what Sir John calls “managing the interface between ideas and business”. Qinetiq hopes to prosper by taking the ideas and technologies it learns from defence contracting, and seeking out ways to apply them to problems in the civilian field. “A feature of warfare is solving problems at the frontier of knowledge,” says Sir John. “That gives us intellectual property that our business model allows us to spin off in different directions.”
The new company will have an operating turnover of £800m and employ 8500 staff in 42 MOD stations…It will also inherit (free of charge) in excess of 5000 patents. http://news.bbc.co.uk/1/hi/business/1957320.stm
Enter the Carlyle Group
In December 2002, one third of the company was sold to the American investment group Carlyle for £150 million. Carlyle owned a number of defence and technology companies in the United States and amongst its senior management team were a number of high profile individuals with links to President George W. Bush and previous Republican administrations including:
* George Bush Senior, acting as a senior advisor.
* Ronald Reagan’s Secretary of Defence Frank Carlucci, who was also the Chair for the RAND Organisation’s Centre for Middle East Public Policy.
* James A. Baker III, a lawyer who led the election campaigns of the last four Republican Presidents and who was George W. Bush’s spokesman at the 2000 election. He was also Secretary of State from January 1989 through August 1992 in Bush Senior’s administration, Secretary of the Treasury in the Reagan administration and was President Reagan’s White House Chief of Staff from 1981 to 1985. His work at the White House began in 1975 as President Ford’s Under Secretary of Commerce and ended with his service once again as White House Chief of Staff for President Bush from August 1992 to January 1993.
* Richard G. Darman who served as Director of the U.S. Office of Management and Budget and as a member of President George Bush Senior’s cabinet. He also held senior policy positions under four Presidents in six Cabinet Departments and the White House. These positions included: Assistant to the President of the United States (1981-85); Deputy Secretary of the U.S. Treasury (1985-87); and Assistant U.S. Secretary of Commerce (1976-77).
* John Major former Conservative Prime Minister was Chairman of the Carlyle Group in Europe.
* Arthur Levitt, Former chairman of the US Securities and Exchange Commission acted as a senior advisor
* Karl Otto Pohl ex-Bundesbank president acted as a senior advisor.
Besides the wealthy bin Laden family, which had disowned Osama, the Carlyle Group managed funds for Prince Alwaleed and the likes of George Soros, earning its investors spectacular returns by taking strategic stakes in everything from Socpresse, parent company of French newspaper Le Figaro, to a subsidiary of the Japanese supermarket giant Daiei.
Sir John Chisholm, QinetiQ’s chief executive, went some way to assuaging the fears of MP’s stating: ‘Carlyle has undertaken to select investors who are predominantly UK or European, so economic ownership remains overwhelmingly British, while QinetiQ business management will continue to remain the responsibility of the QinetiQ management team and the board.’
There was still a huge public outcry that the government which had argued its plans were good for the taxpayer was seen to be let the taxpayer down. And the National Audit Office heavily criticised the Carlyle deal, the public accounts committee claimed the MoD had behaved like “an innocent at a table of card sharps” during the deal.
15 September 2002: The Carlyle Group makes a financial killing
Not even Tom Clancy could have dreamt it up. The UK government sells a stake in its top secret defence laboratories – responsible for inventing the sort of hardware that would make 007’s Q green with envy – to a shadowy American organisation that boasts ex-Presidents and Prime Ministers as special advisers and has invested millions of dollars for the bin Laden family and Saudi royalty.
This is not paperback fiction, however. It is the Government’s latest plan for QinetiQ, the rebranded Defence Evaluation and Research Agency (Dera) that in recent years had developed a diverse portfolio of inventions, including a plastic tank that avoids radar, a new system for mapping the seabed, and technology that allows third-generation mobile phone masts to be installed in churches.
Having opted against floating the company on the stock market because of the global economic downturn, the government decided instead earlier this month to invite venture capital firms to take a stake in the business, which employs more than 9,000 people.
The deal was hugely controversial. The government’s plans to privatise the defence laboratories drew fierce criticism when they were announced four years before. Experts warned it was a way of allowing Ministers to distance themselves from allegations that Britain was underfunding such research.
Now, by opening up QinetiQ to outside interests, the government stood accused of sacrificing the crown jewels of the UK defence industry because of the Treasury’s addiction to public private partnerships at the expense of all other funding alternatives.
Few were surprised when the Carlyle Group emerged at the head of the stampede to acquire the QinetiQ stake, beating fierce competition from a reputed 40 firms. Carlyle is one of the biggest venture capital groups, a leviathan that commands respect and inspires awe in equal parts. Chaired by former US Defense Secretary Frank Carlucci, the group’s tentacles spread far and wide.
The group, which has invested more than $13.5 billion across 20 private equity funds, was renowned for investing in the defence industry, and QinetiQ fitted its portfolio perfectly.
‘It’s a good, solid, well-run company. We believe it’s well established as a supplier to the Ministry of Defence and the non-MoD sector. We conduct a lot of due diligence checks before making any proposals,’ a Carlyle spokeswoman said.
Some have suggested that the MoD was keen to see a US firm win the bidding war. ‘The Americans were very concerned when the government announced it was privatising its research arm because of the close relationship between the US and the UK defence departments. There were huge ministerial efforts to reassure the Americans that nothing would change, and it might have crossed the government’s mind that bringing a US venture capital firm in might not be a bad thing,’ said one expert familiar with the situation.
15 September 2002: The Carlyle Group -an American view
Carlyle is no stranger to controversy. In 2001 the group floated its biggest defence holding, the armoured vehicle and howitzer manufacturer United Defense, on the New York Stock Exchange via an initial public offering. The timing of the float – announced a couple of months after the 11 September atrocities – drew criticism that it was cashing in on terrorism.
US pressure groups such as Judicial Watch started to point out links between Carlyle and the White House. The close friendship between Carlucci and Defense Secretary Donald Rumsfeld – wrestling buddies from university – was subjected to intense scrutiny.
Under the US Freedom of Information Act, Judicial Watch obtained letters exchanged between the two men in which they discussed the ‘restructuring’ of the Defense Department. ‘Dear Don, thanks for lunch last Friday. It was great seeing you in such good spirits,’ writes Carlucci in February 2001, before going on to introduce his ideas for the project.
Two months later Rumsfeld wrote back, congratulating Carlucci and his fellow director William Perry on their work. ‘I may ask the two of you to come in and meet with some of the key staff folks who are working on those types of things here in the department,’ Rumsfeld says.
As concerns about the links between the White House and Carlyle grew, pressure groups campaigned for George Bush Sr to relinquish his links with the group after its relationship with the bin Laden family was exposed. Carlyle and the bin Ladens dissolved their relationship, but critics continue to harry the former President. ‘Bush Sr has to seriously consider the propriety of sitting on the board of a group that was impacted by his son’s decisions,’ said the campaign group, the Center for Public Integrity.
Attention also focused on links between Bush Jr and Carlyle. In 1991 the firm gave George W. a seat on the board of the Texas-based Caterair International, an airline meals firm. Now history was repeating itself, as Carlyle’s defence interests again came under the spotlight. http://www.theguardian.com/business/2002/sep/15/businessofresearch.arms
15 September 2002: Money Money Money – QinetiQ floats on the stock exchange
In 2006 the company hit the headlines for all the wrong reasons when it floated on the London Stock Exchange, a move that saw its private equity owners make a staggering return on their investment. Shares were floated on the London stock exchange at a price of 200p, putting a value of £374m on the Carlyle stake.
US private equity group Carlyle, which had bought a 31% stake in the business from the British government for just £42m in 2003, raised around £160m by selling part of that stake in the flotation that was six times oversubscribed.
Sir John Chisholm, the chairman, and Graham Love, the chief executive, saw their stakes, for which they paid several hundred thousand pounds, valued at about £27m and £23m respectively.
Mr Love took the first opportunity he had to realise some of that windfall earlier this year when a “lock-in” that prevented him from selling shares expired. He sold 2.9m shares – worth just under £6m – for “personal reasons”.
Carlyle, meanwhile, cashed in its chips around the same time. The private equity company, best known for hiring high profile politicians such as Sir John Major as advisers, sold its remaining holding for about £140m.
The National Audit Office (NAO) also lambasted the “excessive” share incentive scheme that netted QinetiQ’s 10 most senior managers £107.5m – a return of 19,900% for their £540,000 investment in shares at the time Qinetiq moved onto the stockmarket: http://www.theguardian.com/politics/2008/jun/10/whitehall.defence
Sir John Chisholm, chairman Invested £130,000. Worth: £25.97m
Graham Love, chief executive Invested £110,000. Worth: £21.35m
Hal Kruth, group commercial manager. Invested £70,000. Worth: £13.88m
Brenda Jones, marketing director. Invested £60,000. Worth: £11.18m
23 March 2003: High-flying venture capital firm Carlyle Group cashes in when the tanks roll
It is the sort of thing they really could have done without. For 15 years one of America’s most powerful venture capital groups tried to play down suggestions that its multi-billion dollar funds get fat on the back of global conflict. But now, with the invasion of Iraq under way, a new book chronicling the relatively short history of the Carlyle Group threatens to draw attention to the company’s close links with the Pentagon.
Dan Briody, author of the Iron Triangle, Inside the Secret World of the Carlyle Group, alleges the company’s executives were so worried about his book they told staff not to talk to him. The Carlyle Group rejects this and argues the book is little more than a cuttings job based around some of the more crazy conspiracy theories found on the internet. It also points out that only around 7 per cent of its funds are invested in defence companies, far less than several other venture capital groups.
‘Peel away the layers of factual errors and self-righteousness and all you’re left with is baseless innuendo. This book should be exposed for what it is: a compilation of recycled conspiracy theories masquerading as investigative journalism,’ said Chris Ullman, Carlyle’s spokesman. http://www.theguardian.com/business/2003/mar/23/iraq.theobserver
10 September 2008: Pigs in the Trough Not that unusual – Taxpayers ripped off again
QinetiQ is now an international defence and security technology company The company’s vision is to be the world’s leading provider of defence and security-based technology solutions and services.
The Labour government, desperate for money at the height of the financial crisis completed the privatisation of the military research company raising a pitiful £260m for the Treasury. The Ministry of Defence (MoD) said it had disposed of its 18.9% stake in QinetiQ but would retain a golden share to prevent any unwelcome bids. “The government always made it clear that ultimately it anticipated selling its entire financial investment to achieve the best value for money for the taxpayer,” said an MoD spokesman.
Sir John Chisholm, QinetiQ’s chairman, said: “The MOD retains its special share in the company which has no financial value but, in common with other privatised companies with strategically important roles, allows the government to protect the national interest.”
The company has over 8,000 employees in Europe, the Middle East and Australasia, over 5,500 in North America and 14,000 at 39 sites in Britain and enjoys long term protected contractor status in its operations within Scotland, including St Kilda and abroad. http://www.microwavejournal.com/articles/print/7206-uk-mod-sells-shareholding-in-qinetiq
The Ministry of Defence Site on Hirta was established in 1957 as a radar tracking station for the missile range in Benbecula, Outer Hebrides. The site is now run by QinetiQ for the Ministry of Defence, and is staffed by civilian workers employed by Qinetiq, Amey and ESS. The base is manned throughout the year by about 15 staff and provides an infrastructure of power, water supply, logistics transport and medical aid.
The ‘Puff Inn’ is a canteen facility for use by QinetiQ and MOD staff and their contractors, and NTS sponsored staff only. It is not open to members of the public. The name ‘Puff Inn’ is a colloquial term for this facility which has been used, misleadingly, for a number of years. It never was, or will be, a licensed public house or ‘Inn’.
When QinetiQ took over the management of areas of St Kilda from the MOD, it was evident that, historically, members of the public had been allowed to use the canteen and toilet facilities. Members of the public are not allowed to use facilities at other QinetiQ operated MOD owned sites (or indeed any military establishment) and it was vital that procedures were tightened up to ensure the St Kilda site is managed in accordance with standard MOD practice. Therefore the public – day trippers, divers, yacht crews etc are not entitled to use QinetiQ managed facilities on St Kilda. Very sad news for the fishermen who enjoyed a tipple for many a year in the remotest pub in Scotland
St Kilda Now St Kilda early 1900’s
So what has the taxpayer missed out on?
The global defence market is estimated at £82 Billion annually. The UK taxpayer gains little financial benefit from the international arms trade since the source of any income was sold off on the cheap by Brown & Robertson with the support of their labour party colleagues. The politics of the madhouse. http://www.theguardian.com/business/2008/sep/10/qinetiqgroup.defence